In this article, we will discuss the top 10 stock picks of Ryan Frick and Oliver Evans’ Dorsal Capital Management.
Ryan David Frick and Oliver Evans, two SAC Capital alumni, founded Dorsal Capital Management in 2009. Frick completed his MBA from Stanford University and served as a Portfolio Manager at CR Intrinsic Investors for four years. CR Intrinsic was an affiliate of SAC Capital. Before joining CR Intrinsic, Frick started as an analyst covering the Media and Internet segment at Kicap Management. Presently, Frick is performing his duties as a Managing Partner and Chief Investment Officer (CIO) of Dorsal Capital Management.
Evans, on the other hand, has been a retired partner since 2014 and is currently employing his skills in managing direct public equity at the family offices of Apercus Holdings and Keystone LP. Evans completed his MBA from the Harvard Business School in 2004. Before that, he studied at the University of Oxford and was the President of the Oxford Union Society. He also worked as an analyst at CR Intrinsic for two years before founding Dorsal Capital Management.
The Redwood City, California-based hedge fund specializes in generating risk-adjusted returns that are not related to the broad performance of the equity markets. The hedge fund focuses on media, retailers, and technology stocks and considers itself an expert in managing pooled investment vehicles. Dorsal Capital Management’s portfolio is valued at over $2.05 billion as of Q3 2021.
As of the third quarter, the hedge fund has a stake in popular companies like Microsoft Corporation (NASDAQ:MSFT), Alphabet Inc. (NASDAQ:GOOG), and Snap Inc. (NYSE:SNAP).
According to the latest 13F holdings, Dorsal Capital Management owns 550,000 shares in Microsoft Corporation, representing 7.57% of the overall portfolio. The hedge fund has had holdings in Microsoft Corporation since Q3 2012.
In Alphabet Inc., the hedge fund owns 71,000 shares with a cumulative value of $189.8 million.
Moreover, Dorsal Capital has a stake worth over $190.2 million in Snap Inc.. The investment represents 9.29% of the overall Q3 portfolio of Dorsal Capital Management. On December 10, Thomas Champion at Piper Sandler issued an Overweight rating on Snap Inc. with a $72 price target.
Ryan Frick of Dorsal Capital
Our Methodology
For this article, we picked the top 10 stocks from the third quarter portfolio of Ryan Frick and Oliver Evans’ Dorsal Capital Management.
Top 10 Stock Picks of Ryan Frick and Oliver Evans’ Dorsal Capital Management
10. Costco Wholesale Corporation (NASDAQ:COST)
Dorsal Capital Management’s Stake Value: $89,870,000
Percentage of Dorsal Capital Management’s 13F Portfolio: 4.39%
Costco Wholesale Corporation (NASDAQ:COST) is a membership-only warehouse club that offers the lowest possible prices on brand-name merchandise. The Issaquah, Washington-based corporation, is the fifth-biggest retailer in the world with over 800 locations in the US, Canada, Mexico, and nine other countries. In 2022, Costco Wholesale Corporation intends to open new stores in New Zealand and Sweden for the first time. The big-box retailer offers only 4,000 SKUs as opposed to 30,000 SKUs offered by other supermarkets. However, by carefully procuring these products, the entity ensures that it provides the best value to its customers.
In a research note issued on December 14, Chris Graja at Argus increased the price target on Costco Wholesale Corporation stock from $515 to $610 while maintaining a Buy rating. The analyst highlighted the Q1 FY22 earnings beat with a 70 bps improvement in renewals from US and Canada along with a 6.8% increase in global traffic. The analyst is “very bullish” on the stock and expects it to perform well despite uncertainty in the equity markets as the Federal Reserve looks to reduce the stimulus and increase the interest rate in 2022. The analyst has kept Costco Wholesale Corporation on the Buy-list since October 2008 with a target price of $58.
Saturna Capital shared its stance on Costco Wholesale Corporation in its Q3 2021 investor letter. Here’s what the firm said:
“Costco had a rocky start to the year as the vaccine rollout perhaps convinced investors that shopping habits might normalize. Instead, the spread of the Delta variant, combined with contributions from the millions of new members Costco attracted since the beginning of the pandemic, have powered the business and the share price forward since early March.”
Apart from Costco Wholesale Corporation, popular companies like Microsoft Corporation, Alphabet Inc., and Snap Inc. are also a part of Dorsal Capital’s Q3 portfolio.
9. Amazon.com, Inc. (NASDAQ:AMZN)
Dorsal Capital Management’s Stake Value: $90,339,000
Percentage of Dorsal Capital Management’s 13F Portfolio: 4.41%
Amazon.com, Inc. (NASDAQ:AMZN) is a tech mogul that is involved in artificial intelligence, cloud computing, digital streaming, and e-commerce. The Seattle, Washington-based company is the fourth biggest publicly traded company in the US and only one of the five companies in the US equity markets having a market capitalization of over $1 trillion. The stock became a constituent of Dorsal Capital Management’s portfolio in Q1 2016. However, the hedge fund abandoned its holdings in Q2 2018 and then reinitiated a position in Q1 2020 and has continued to go long on the stock.
In an update issued to investors on December 28, Brian White at Monness Crespi thinks that although the stock price performance of Amazon.com, Inc. was underwhelming in 2021 as it experienced an increase of nearly 5% only as opposed to the rise of 22.5% and 27.4%, respectively, experienced by the S&P 500 Index and the NASDAQ Composite Index, Amazon.com, Inc. is in a position to exit the crisis related to AWS and rise as one of the biggest beneficiaries of the digital transformation. The analyst gave a target price of $4,500 with a Buy rating.
Amazon.com, Inc. was mentioned in the Q3 2021 investor letter of Davis Funds. Here’s what the fund had to say about the company:
“E-commerce, online search and advertising, social media and software are another component of the portfolio that have proven, attractive businesses. The online portion of the Fund is currently dominated by such market leaders as Amazon.com. We are attracted to these names based on the size and rapid expansion of their market opportunities globally, their ability to generate and grow new revenue sources through constant innovation, ample operating leverage as they continue to scale and capable, focused, highly competitive leadership teams. If purchased at sensible prices, these types of businesses in our experience can contribute meaningfully to long-term results.”
8. Dynatrace, Inc. (NYSE:DT)
Dorsal Capital Management’s Stake Value: $99,358,000
Percentage of Dorsal Capital Management’s 13F Portfolio: 4.85%
Dynatrace, Inc. (NYSE:DT) is a provider of software intelligence platforms based on automation and artificial intelligence (AI) with the aim of monitoring and optimizing the performance, security, and user experience of a given software. The platform of the Waltham, Massachusetts-based company runs on multi-cloud and hybrid-cloud settings and gives automatic responses to errors. Dorsal Capital Management initiated a holding in the entity in Q3 2020.
On October 28, Jack Andrews at Needham, while maintaining a Buy rating on Dynatrace, Inc. stock, increased the price target from $72 to $87. Andrews thinks that Dynatrace, Inc. is on the path of reacceleration as the company increased its FY22 guidance despite facing the impact of currency headwinds. The analyst also sees an increase in continued sales capacity of 30% in FY22.
Out of the 867 hedge funds tracked by Insider Monkey, 41 of them have a stake in Dynatrace, Inc., and the cumulative value of their holdings stands at nearly $2.39 billion as of Q3 2021. The stock price of Dynatrace, Inc. has increased by more than 41% YTD and has outperformed the rise of over 22% experienced by the tech-dominated NASDAQ Composite Index.
Polen Capital discussed its stance on Dynatrace, Inc. in its Q3 2021 investor letter. Here’s what the investment management firm said:
“Dynatrace outperformed during the quarter as the company reported earnings results that handily beat expectations. The company continues to increase its customer base and has expanded net revenues with existing customers.”
7. Twilio Inc. (NYSE:TWLO)
Dorsal Capital Management’s Stake Value: $103,691,000
Percentage of Dorsal Capital Management’s 13F Portfolio: 5.06%
Twilio Inc. (NYSE:TWLO) allows the incorporation of phones, VoIP, and messaging services into desktop and mobile software through its web service APIs. The San Francisco, California-based company is an entity that provides a cloud communications platform as a service (CPaaS) through its 26 offices in 17 countries. Dorsal Capital Management initiated a stake in Twilio Inc. in the fourth quarter of 2019.
On December 16, coverage was initiated on Twilio Inc. with a Buy rating and a price target of $350 by Kash Rangan at Goldman Sachs. The initiation was part of a broader start of coverage on the communication and collaboration segment. The target price provides an upside potential of 35% from the last closing price of Twilio Inc. stock. The total addressable market for cloud services stood at $19 billion as of 2020, reflecting a penetration of 7% by cloud services in the IT sector. However, this is expected to rise to 29% by 2025. The analyst believes that the COVID-19 pandemic has shed light on the significance of Twilio Inc.’s tools of customer engagement.
6. US Foods Holding Corp. (NYSE:USFD)
Dorsal Capital Management’s Stake Value: $119,577,000
Percentage of Dorsal Capital Management’s 13F Portfolio: 5.84%
US Foods Holding Corp. (NYSE:USFD) is a marketer, distributor, and supplier of dry, fresh, and frozen food items to nearly 300,000 restaurants in the US through its exclusive brands. The Rosemont, Illinois-based entity has a workforce of around 25,200 employees across 60 locations in the US. Dorsal Capital Management initiated a stake in US Foods Holding Corp. stock in Q1 2021.
US Foods Holding Corp. is in the middle of an activist investor battle as Sachem Head revealed a 5.1% stake in the company in its Q3 2021 filings. Sachem Head is pressurizing the foodservice company to improve its operations. As a result, US Foods Holding Corp. is looking to shake up its management by bringing in a COO and replacing its existing CFO.
On December 17, John Ivankoe at JPMorgan issued a price target of $40 and a Neutral rating on US Foods Holding Corp. stock. Although the company is facing challenges related to the supply chain, the analyst foresees “more tailwinds than headwinds” next year for the restaurant industry. There has been no permanent impact on sales as restrictions related to the COVID-19 virus are easing in the US along with ease in shortage of labor.
In addition to US Foods Holding Corp., Microsoft Corporation, and Alphabet Inc., Snap Inc. is also amongst the top 10 holdings of Dorsal Capital Management’s Q3 portfolio.
5. Zillow Group, Inc. (NASDAQ:Z)
Dorsal Capital Management’s Stake Value: $130,007,000
Percentage of Dorsal Capital Management’s 13F Portfolio: 6.35%
Zillow Group, Inc. (NASDAQ:Z) offers digital real estate buying, selling, and financing services across the US through its website and mobile application. The Seattle, Washington-based corporation became part of Dorsal Capital Management’s holdings back in 2016 for a couple of quarters. However, the hedge fund initiated a long position again in Zillow Group, Inc. stock in Q4 2020.
In an update released to investors on December 3, Brent Thill at Jefferies gave a price target of $115 on Zillow Group, Inc. with a Buy rating.
Asset management firm Baron Funds mentioned Zillow Group, Inc. in its Q3 2021 investor letter. Here’s what the firm said:
“Underperformance of our investments in Communication Services and Financials detracted the most from relative results. Weakness in Communication Services again came from Zillow Group, Inc., which operates real estate websites, a mortgage marketplace, and a home-buying business. Zillow was the third largest detractor due to concerns about negative impacts on the housing market from higher interest rates as well as execution risks in the company’s home-buying business.
Zillow Group, Inc. operates leading U.S. real estate sites, a mortgage marketplace, and a home-buying business. Shares were down due to concerns around rising interest rates and the potential knock-on effects to the housing market. Our channel checks have indicated that the housing market remains robust. Even if demand were to soften, Zillow’s offering could become even more valuable as it delivers high-quality buyer and seller leads. Longer term, we believe Zillow has an ample runway for growth given its strong management team and large customer base.”
4. Microsoft Corporation (NASDAQ:MSFT)
Dorsal Capital Management’s Stake Value: $155,056,000
Percentage of Dorsal Capital Management’s 13F Portfolio: 7.57%
Microsoft Corporation is a developer and producer of consumer electronics, computers, software, and related services. Dorsal Capital Management initiated a position in Microsoft Corporation back in the third quarter of 2012.
Steve Koenig at SMBC started coverage on Microsoft Corporation with a price target of $410 and an Outperform rating in an update to investors on December 21. The analyst thinks that Microsoft Corporation is working successfully in shifting its customers towards cloud offerings and is in a position to benefit from the significant secular trends in the software industry. The analyst sees Microsoft’s Azure in close distance to Amazon Web Services (AWS) and forecasts Microsoft’s cloud computing services to surpass Amazon’s in the public cloud market by 2025.
Baron Funds shared its stance on Microsoft Corporation in its Q3 2021 investor letter. Here’s what it had to say:
“Shares of Microsoft Corporation, a cloud-software leader and provider of software productivity tools and infrastructure, rose during the quarter following a strong earnings report highlighting solid demand for its broad product stack and continued momentum migrating its business to the cloud. Microsoft’s results continued to be strong across the board, with total revenue beating Street estimates by 4.5%, an acceleration in Commercial Cloud revenue to 31% constant-currency growth, a four-point improvement in Commercial Cloud gross margins (to 70% from 66%), and GAAP earnings up 42%. We believe the company is positioned to deliver 13% to 15% organic growth over the next three years, underpinned by TAM expansion across its disruptive cloud product portfolio, as more companies look to transform and digitize their businesses, as well as strong operating leverage as its cloud products gain scale.”
3. Alphabet Inc. (NASDAQ:GOOG)
Dorsal Capital Management’s Stake Value: $189,820,000
Percentage of Dorsal Capital Management’s 13F Portfolio: 9.27%
Alphabet Inc. is the principal of Google and other subsidiaries related to artificial intelligence, autonomous driving, cloud computing, hardware, etc.
Tech investor, Founder, and Portfolio Manager at Satori Fund, Dan Niles considers Alphabet Inc. as one of his top picks for 2022. He thinks that Alphabet Inc. stock offers growth at a reasonable valuation.
Alphabet Inc’s YouTube and the Walt Disney Company reached an agreement on December 19 to continue the access to Disney-owned channels on YouTube TV. The previous contract between the two media giants expired on December 18 that resulting in a blackout of Disney channels for four million subscribers of YouTube TV. For the inconvenience, YouTube TV granted a $15 discount on monthly bills to active users of YouTube TV.
Alphabet Inc. was mentioned in the Q3 2021 investor letter of RiverPark Funds. Here’s what the investment management firm had to say about the company:
“Internet services leader Alphabet was also a top contributor for the quarter, hitting its all-time high on September 1. Fundamentals at the company remain stellar—the company reported its highest quarter ever for sales and profit in late July. The company reported second-quarter revenue of $62 billion, an increase of 62% year over year, which, when combined with strong expense controls, led to a tripling of operating income to $19 billion. The company experienced strong revenue growth across all its segments—Google Services (mostly Advertising) grew 63%, Google Cloud grew 54% and Other Bets grew 30%.
With its continued strength across its core Search and YouTube franchises and emerging strength in its still small Cloud business, we continue to view Alphabet as among the best-positioned secular growth franchises. Additionally, despite its strong performance this year, GOOG shares trade at a compelling 20x our 2022 EPS estimate (which includes earnings drags from losses in its Other Bets and Google Cloud segments, which lost a combined $2 billion last quarter), only a slight premium to the market.”
2. Snap Inc. (NYSE:SNAP)
Dorsal Capital Management’s Stake Value: $190,215,000
Percentage of Dorsal Capital Management’s 13F Portfolio: 9.29%
Snap Inc. is a camera and social media company founded in 2011 by Evan Spiegel and Bobby Murphy. Based out of Santa Monica, California, Snap Inc. has products and services like Snapchat, Spectacles, and Bitmoji under its wings. Snap has been a part of Dorsal Capital Management’s portfolio since Q1 2020. According to Insider Monkey’s database comprising 867 hedge funds, 78 of them have a stake in Snap Inc. with a combined value of $6.74 billion as of Q3 2021. The number of hedge funds having a stake in Snap Inc. has increased by 14 on a sequential basis.
On December 10, Thomas Champion at Piper Sandler gave the stock an Overweight rating with a $72 price target. The analyst pointed out the headwinds in the form of Apple’s Identifier for Advertisers reducing the revenue growth projections of Snap Inc. from 50% YoY to 30% YoY in the next few quarters. Although Snap Inc. is facing challenges related to targeting and measurement, the issues are being seen as temporary in nature. The analyst has highlighted the “long track of superior revenue growth” as a positive and sees its valuation as attractive to go long as the company returns to post-pandemic normalization.
Jefferies Group shared its stance on Snap Inc. in its Q3 2021 investor letter. Here’s what the investment management firm had to say about the company:
“We believe SNAP may be one of the best positioned virtual platforms in the development of the Metaverse. In order to better understand SNAP’s leadership position, we examine the significance of four key product areas; 1) the camera and augmented reality, 2) virtual avatars, 3) the Snap Map, and 4) hardware.
Camera and Augmented Reality: SNAP distinguishes itself from its peers by building products that leverage camera and AR technology as the principal drivers of engagement and user generated content. Currently, SNAP has 290M+ DAUs who create on average 5B snaps per day, open the app on average 30 times per day, and regularly use AR lenses to communicate with friends and brands (200M+ DAUs using AR). As we mentioned in the “Virtual Platforms” section of this report, the Metaverse is enabled by platforms that provide the “picks and shovels for content creation, the ongoing maintenance of live experiences, user interface, and social interactions”. We believe SNAP is beginning to successfully democratize its AR tool sets through its recently launched Lens Studio and Camera Kit. We highlight that the Lens Studio enables a community of 200K+ creators to build their own AR experiences using their own machine learning models. The Camera Kit makes the tools from the Lens Studio interoperable with partner apps like Zoom, the MLB, and Disney. In our view, SNAP is one of few platforms making AR technology easily accessible both inside and outside its App, which should support the company’s AR leadership for years to come…” (Click here to see the full text)
1. Liberty Broadband Corporation (NASDAQ:LBRDA)
Dorsal Capital Management’s Stake Value: $315,178,000
Percentage of Dorsal Capital Management’s 13F Portfolio: 15.4%
Liberty Broadband Corporation (NASDAQ:LBRDA) is an owner and operator of various communication businesses. The Englewood, Colorado-based entity is a holding company and has a 26% stake in Charter Communications, Inc. (NASDAQ:CHTR) and completely owns GCI and Skyhook.
In a note to investors issued on December 15, Jeffrey Wlodarczak at Pivotal Research gave Liberty Broadband Corporation a Buy rating with a price target of $212. The price target is derived through the sum-of-the-parts valuation of Charter Communications and other segments.
Alphyn Capital Management mentioned Liberty Broadband Corporation in its Q1 2021 investor letter. Here’s what the investment management firm said:
“Liberty Broadband completed its merger with GCI, thereby collapsing one layer of the double discount to Charter Communications, presenting a good opportunity to trim that position as well.”
You can also take a peek at the Top 10 Stock Picks of Gordon Malin’s Mountain Road Advisors and 10 Best Gold Stocks To Buy Right Now.
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This article is originally published at Insider Monkey.
